A mortgage is essentially a fancy word for a loan. When you are ready to purchase a house, most people don’t have the full price amount on hand to pay in full. This is where a good mortgage lender comes in and what mortgages are designed for. The extra money is borrowed from a lender with the promise of repayment over a set period of time. The length of the loan is known as the loan term.
While this lengthy monetary commitment can be a burden, it’s advantage lies in being able to give you a place to live, while also providing tax breaks and adding an asset to your financial portfolio. Because its value will increase over time, purchasing a home is considered a good investment.Learn more here.
Having a mortgage allows you to pay for a fraction of a home’s cost up front, while a bank or private lending company provides the rest of the money to you as a loan. This upfront cost is known as the down payment. The remaining money must be repaid with interest over a period of time that can last up to 30 years. To ensure that you will pay back the borrowed money, the house is put up as collateral – meaning that if the payments are not made, the bank or company has the right to take your house away and kick you out in a process called foreclosure.
Now, mortgage lenders don’t just loan their money to anyone who applies. This is why your credit score is so important. Essentially, your credit score is a number that signifies your financial reputation. Based on your history of paying back all types of credit, from credit cards to student and business loans, your score goes down whenever a payment is missed. It can be brought back up, but it is hard work. While there isn’t any particular universal limit for a credit score to be rejected for a loan, it is up to the lender how much risk they want to take on by accepting a lower score applicant. Typically, having a lower credit score means you have to pay a higher interest rate to help cover this risk.
Understanding your mortgage and having it explained by your broker is critical because, if you end up with a mortgage you can’t afford that leads to foreclosure, your credit score will suffer, taking at least 3 to seven years to recover before you can buy another house, or make any other credit-based purchases. You can also be hit with a large tax bill on top it all. So, make sure you do the proper research when choosing your lender, and for which type of mortgage is best for you. The result can save or cost you thousands of dollars!
Now that you understand the basics, it’s up to you to find the best mortgage brokers in your area to guide you through the process. If you’re looking to buy a home in the near future, start saving sooner rather than later, and do what you can to keep that credit score high!